A friend of mine was considering buying a used luxury vehicle (3-4 years old), and while it’s not a car I would ever buy, it fits his personality.
However, he is thinking of now buying new because,
“The interest rate on a new car is a lot lower, 1.9% vs 4 or 5%”
Now, my friend is one of the smartest people I know…but this is just terrible logic, right?
On a $40,000 loan, a 2 or 3% rate difference isn’t going to make a dent in even just the first year of depreciation on a new car.
I know if I ask for advice, everyone is going to scream, “Stupid! Go for the used car”….
but,
Are there ever any reasons to buy a new car? (I can think of a few…mostly not financial though!
As a dumb 20-something, I day traded away over a quarter-million dollars and found myself deep in debt. 
{ 11 comments… read them below or add one }
I bought a brand new car recently. I’m not sure that I would advise others to do the same, but for me it made sense.
I looked into buying a 2 to 3 year old car instead of a new one, but the used cars I looked at with warranties were over-priced and I didn’t feel comfortable buying a car without a warranty. I bought a Honda Civic, and the used cars with warranties that I looked at were priced within $1000-$1500 of the new one I ultimately ended up purchasing.
I made the decision to buy new for the peace of mind that having a new car with a three year, 36,000 mile warranty has given me. I commute an hour each way to work and I don’t get home until around 1am every night. As a young woman living on my own, I need to know that my car is not going to break down in the middle of the night on the side of the highway. And that if it does, it’s not going to yield a surprise $1000+ repair bill.
The $320/month payment is worth it to me. As my car gets older, my work hours will become more regular, so I won’t be as concerned about breaking down. But in the meantime, knowing that my car repairs are covered under warranty and that my car is in excellent condition allows me to breathe easy and focus on things other than whether a car mechanic is trying to rip me off because I’m a woman.
Is there ever a reason to buy a new car rather than a used car?
Sure, Jane’s comment is one good example. Her decision isn’t necessarily “logical” from a practical or financial point of view, but it is more than worth it for her “peace of mind” which also has value. So long as Jane lives within her means, and pays her bills when due, then her decision to pay more for a new car, at an extra $50 or $100 or more a month, makes sense for her.
It is the same concept with “extended warrantees” on cars (and other stuff). Financially they are generally a terrible investment (possibly excluding German cars), but as an investment in “peace of mind” they have value for some people.
I buy a new car every 6 years or so. Currently I judge the practical lifetime of a Japanese sedan to be about 150K miles. At this point the value of the car is negligible so depreciation is not an issue for me.
As Consumer Reports recently reported, from a strictly financial viewpoint purchasing a good quality 2 year old Japanese sedan is the most logical choice in almost all cases. No question about it.
But buying a car is not just a financial decision for us. We make a statement about ourselves in the vehicle we select. Who really needs a 5 or 6 thousand pound SUV to ferry a 120 pound Mom to the food store? Almost every SUV has a “low range” transmission for “off road” use. How many soccer moms (and dads) have a clue what it does or when to use it? Even the Luddites among us are making a point with their vegetable oil diesels, mega-mileage gas sippers and no-options bare-boned coupes.
Otherwise 90% we would be driving Honda Accords and Toyota Camrys and deciding what color we want. They are essentially perfect transportation devices for the masses.
No one needs a $40 or $50K luxury vehicle. They buy it because they want it. Keep in mind most people that purchase expensive vehicles new don’t keep them 5 or 10 years until they wear out. They get tired of it and move onto something new. Well, if that makes them happy that’s their business, but if they can’t really afford it, or have to sacrifice something else that may be more important, oh well.
Drive through the parking lot of an apartment complex in your neighborhood. A nice facility with one to three bedroom rentals. How many high-priced SUV’s, BMW’s and pricy Japanese sports cars and sedans are around? For my money I’d have a cheap car and a nice condo or townhouse, but that’s just me. We all make our choices.
There are some very, very good used car opportunities out there that allow you to save by not buying a new car but afford you a warranty/service coverage that is typically better than a new car. Primary example would be the BMW CPO program. Last year I purchased a 2006 X3 CPO (certified pre-owned) for $25k after all tax/title and such. What did that get me? A three year old BMW x3 with 42k miles on it. Because it’s a CPO it takes the original 4yr/50k warranty and extends it out to 6yr/100k (so I effectively got a 3yr/58k warranty). Original MSRP + tax/title would have been in excess of 44k. Since I bought that BMW has actually tacked on their no maintenance coverage on to all of the CPOs so that as long as you are under 6 years/100k miles you don’t even pay for oil changes. If the x3 isn’t your flavor, get a 3 series for better mileage/typical sedan. At this price you actually get a bit of ROI and at the same time are afforded the warranty/maint coverage. I’ll only go CPO from here on out.
It is fun for people to assume I paid $40-50k for my BMW when I likely paid less than they did for their new Honda Accord and my car has a much longer warranty
I think as long as you can afford a new car is the logical reason here. Sure, it sucks that you lose the value of the car as soon as you drive off the lot..but people get to enjoy their new car. It’s asking..should I take a vacation? well heck yeah as long as you can afford it!
Thanks for posting that, Jason!
I didn’t realize BMW had all those options. I always loved BMWs but never bothered to even do basic research on purchasing one because I just assumed even a used one would be out of my price range.
I’m planning to replace my current vehicle in about 1.5 years with a “newer” used vehicle, so I will keep that CPO option in mind.
Just run the numbers and you’ll see that a CPO is the way to go. The immediate devaluation of the car is already taken care of and you end up with a far superior warranty to the one that you receive with a new car.
Never a good reason to buy new. Interest rate, warranty or otherwise. It’s too bad some of my fellow responders don’t agree. Give them time…they will. The new wears before the payments do.
While I would say buying a used car is more logical, it comes down to circumstance. I’ve always had bad luck buying a used car. For me it was like throwing money out the window. One repair after another had me wishing I bought new with a warranty. If your guy knows how to shop for a used car and can be certain it’s of quality, then used is the way to go. Just not for me.
I’ve purchased 3 new cars in my life time. My first was a 99 Blazer bought in Jan. 1999, the second was a 2001 Eclipse bought in Sept. 2000 (my husband’s car actually) and the third was a 09 Traverse bought in August 2009. The traverse replaced the 10 year old Blazer that was starting to need costly repairs. I love having a new car. I like having the warranty (the first was bought when I was a single woman living alone in a big city and liked the peace of mind with having a reliable vehicle and the Traverse was bought knowing that it was the transportation for my three small children and wanted a reliable car for them). Will I buy new on the next purchase when the Eclipse needs replacing? Maybe. Depends. I like the 0% interest rate I got on the Traverse. We’ll see how much money we have in savings when it’s time to replace the Eclipse. It’s currently our commuter car and gets ~250 miles on it a week. It just left me stranded 30 miles from home on a freeway exit ramp last week. If it starts to become a reliability problem then it too will go. I have no problems purchasing new cars since I keep them for a long time.
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